Filing summary
Entity note: The supplied filing is Adherex Technologies Inc.’s Form 10-Q, not a filing under Fennec Pharmaceuticals Inc.’s name. It covers the quarter ended March 31, 2013. Financial amounts are in U.S. dollars, generally in thousands, unless noted.
Business context
Adherex describes itself as a development-stage biopharmaceutical company focused on cancer therapeutics. Its principal programs were Eniluracil and STS; it had no product sales or revenue.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $178 | $296 |
| General and administrative expense | $359 | $320 |
| Operating loss | $(537) | $(616) |
| Net loss / income per share | $(4,108) / $(0.16) | $2,715 / $0.11 |
| Operating cash used | $(407) | $(578) |
| Cash and equivalents | $1,896 | $2,303 at Dec. 31, 2012 |
| Current liabilities | $11,003 | $7,322 at Dec. 31, 2012 |
| Derivative liabilities | $10,213 | $6,640 at Dec. 31, 2012 |
| Stockholders’ deficit | $(9,065) | $(4,957) at Dec. 31, 2012 |
The $3,573 derivative remeasurement loss was non-cash and drove the change from prior-year quarterly net income to a net loss. The filing does not report meaningful revenue margins. No long-term liabilities or capital assets were reported at quarter-end. Working capital, excluding derivative liabilities, was $1,148, down from $1,683 at year-end 2012.
Material changes and outlook
- Operating expenses declined $79 year over year, mainly because R&D expense fell by $118 as fewer patients remained in the Eniluracil study; G&A rose by $39, primarily from insurance and investor-relations costs.
- The Eniluracil Phase II trial enrolled 153 patients and completed enrollment in December 2012. Management expected final efficacy and safety data in Q2 or Q3 2013.
- The Children’s Oncology Group STS trial had completed enrollment in the first half of 2012, with final data expected in Q2 or Q3 2013. The SIOPEL trial had enrolled 72 patients as of May 10, 2013.
- Management said additional funding would be needed to finance operations and development. It warned that failure to obtain adequate capital could force delays, reductions, termination of studies, a business combination, or a shutdown.
- Contractual obligations totaled $379, primarily $354 under the OCT clinical-services agreement and $25 for LifeSci Advisors, all due within one year. An April 2013 amendment extended OCT services by six months.
Risks, contingencies, and unusual items
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Cash was $1,896 against current liabilities of $11,003; the company had an accumulated development-stage deficit of $114,651.
- Adherex said it lacked the financial and internal human resources to complete Phase III trials independently and continued seeking funding or development partners. Clinical outcomes, collaborators’ commitment, regulatory review, and commercialization were uncertain.
- Canadian-dollar-denominated warrants were treated as derivative liabilities and remeasured using a Black-Scholes model. Their $3,573 quarterly loss increased reported liabilities but had no immediate cash-flow effect.
- Management concluded disclosure controls were not effective because one full-time employee handled accounting and financial reporting, creating a material weakness in segregation of duties. Additional contracted accounting support had addressed a prior weakness but had not eliminated this deficiency.
- The TSX completed a delisting review in January 2013 and found the company met continued-listing requirements; future listing eligibility remained a disclosed risk.
Important facts to verify
- Confirm the intended issuer: the supplied filing is for Adherex Technologies Inc., not Fennec Pharmaceuticals Inc.
- Verify current liquidity, financing availability, and the company’s ability to meet near-term obligations and continue as a going concern.
- Check actual Eniluracil and STS trial results and subsequent development or partnering decisions against the filing’s expected timelines.
- Review the valuation assumptions and future remeasurement effects of the derivative warrant liabilities.
- Confirm whether the material weakness in financial-reporting controls was remediated and whether the TSX listing requirements continued to be met.